STATEN ISLAND, N.Y. — At the height of the coronavirus (COVID-19) pandemic, hordes of frenzied home buyers snapped up real estate at an alarming rate, swooping in with astounding all-cash offers to secure property in a rather unconventional way.
But according to some new real estate data and recent reporting, sidestepping a mortgage is no longer an offbeat move: Last year, nearly a third of U.S. homes were purchased with cash. Which begs the question — how are such exorbitant purchases possible?
“Only the wealthy are essentially buying homes,” Lawrence Yun, chief economist at National Association of Realtors, recently told the Wall Street Journal, responding to data provided by the realty company Redfin, which indicates a sudden rise in all-cash sales. “If this trend was to continue, that means something fundamentally is wrong with society.”
The trend isn’t happening equally across the country, but more accurately in pockets, the Journal reported. In Washington, D.C., and its immediate surroundings, almost a fifth of homes purchased in 2022 were bought with cash. Forty miles north, in Frederick, Md., that rate nearly doubled. A little closer to home, in Nassau and Suffolk counties, almost half of all homes purchased since 2020 were bought in cash. Most likely because cash-rich city-dwellers living in condos and apartments suddenly wanted more.
“What we found was those who already were more well-off were able to take advantage of the strong housing market and add to their wealth, while those trying to better their situation were often pushed to the side,” Ali Wolf, chief economist at Zonda, a housing data and consulting firm, told the Journal.
Retirees, buyers who relocated using home-equity proceeds, foreign buyers, investors and high-wealth individuals are the ones who are leading this charge, the real estate expert told the media outlet, using all-cash offers as a way of sidestepping rising interest rates.
Redfin’s data noted that the share of homes bought with cash is now at levels not seen since 2014, when the housing market was on the rebound after the foreclosure crisis and the Great Recession. But where does that leave bidders who need the help of banks to finance their purchase?
“FHA loans, which typically allow for lower down payments, have ticked up in popularity in response to the slowdown in housing-market competition,” Redfin noted, detailing government-backed mortgages insured by the Federal Housing Administration.
But even though it’s easier for buyers to now use FHA loans — which require lower minimum credit scores and down payments than many conventional loans — the site said that affluent all-cash buyers are still in a more financially advantageous situation, because they don’t need to take out a loan with 6%-plus mortgage interest rates.
Which gives good reason for the all-cash trend to continue.
“All-cash purchases are prevalent with today’s affluent buyers, largely because mortgage rates have doubled from a year ago,” Redfin noted. “Buyers who don’t use loans avoid high interest payments that exacerbate home prices, which remain near record highs.”
And because U.S. home values have skyrocketed, longtime homeowners are taking advantage of the rise and relocating to more affordable cities.
“Americans who sell a home in a pricey place like San Francisco may use equity to pay cash in a more affordable area like Las Vegas,” Redfin concluded.
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